Manufacturers bet on compact cars

The Detroit auto expo this week will feature a variety of small, high-mileage vehicles

By Dee-Ann Durbin

Associated Press

POSTED: 01:30 a.m. HST, Jan 09, 2011

ASSOCIATED PRESS

Small cars are expected to be the hot vehicles this year. Here, construction continues at the Smart display at the North American International Auto Show in Detroit.

DETROIT » A new Prius wagon, a small Ford minivan and a Volkswagen sedan won't be the sexiest cars at the Detroit auto show. But carmakers are counting on them being winners this year if more buyers start choosing small size and fuel efficiency over horsepower and heft.

The show, which opens to the public Saturday, was known for over-the-top stunts and out-there concept cars in its pre-recession days. In 2006, Chrysler drove a Jeep through a plate-glass window; the following year, a Chinese automaker revealed a concept car with shag carpeting and wheels that ran down its middle.

There will still be eye-popping cars on display. Porsche has promised something "spectacular." There will also be some new concepts, such as a Kia crossover with swiveling rear seats and side doors that hinge on the roof, like a DeLorean sports car. But the industry was sobered by the economic crisis, and it's betting buyers were as well, especially with gas prices and U.S. fuel economy standards rising.

There's no guarantee Americans will scale back on size. In fact, after touting smaller cars and electric vehicles at last year's show, the industry saw trucks and SUVs outsell cars during 2010. But conditions are ripe for that trend to reverse.

BUZZ-WORTHY VEHICLES

The North American International Auto Show in Detroit opens to the public Saturday. Among the cars that will generate buzz:Prius V: Toyota will unveil a larger Prius, the first vehicle of a new brand built around the hybrid. Toyota has released little information about new vehicle, dubbed the Prius V. But teaser photos show more cargo space and panoramic sunroofs.Sonic and Verano: GM is introducing two new small cars, the Chevrolet Sonic, a subcompact which will replace the Aveo, and the Buick Verano, a compact car based on the Chevrolet Cruze which will be the smallest car in Buick's lineup.C-Max: Ford will introduce this small minivan. It's about the size of the Mazda5, but unlike the Mazda, which seats six, the C-Max seats seven. It also has an industry-first feature: A lift-gate that opens when the driver waves his or her foot under the back bumper.New Civic: Honda will unveil the latest version of the Civic, one of the best-selling cars in the U.S. Honda bills it as a concept car, but it will likely be close to the version that hits dealerships in March.

Associated Press

If that happens, Detroit won't be left behind as it was in the 1970s or even three years ago, when gas-price spikes allowed small, Japanese-made cars to capture the compact market. General Motors and Ford have stylish, well-made models, such the new Focus and Cruze. While Toyota and Honda still lead in that area, Detroit is stealing back more of their customers.

Car companies rely on big shows in Detroit, Beijing, Geneva and elsewhere to show off new models and test new designs on hundreds of thousands of visitors. The world first saw the Chevrolet Volt, an electric car, at the 2007 Detroit show, for example. It finally went on sale last month.

Other ideas don't pan out. Hydrogen-powered concept cars were all the rage three years ago. None has reached the market.

Among this year's offerings:

» The Prius wagon, Toyota's first entry in a planned family of Prius hybrids.

» The ninth-generation version of the Honda Civic, one of the top-selling compact cars in the U.S.

» The Chevrolet Sonic subcompact, which replaces General Motors' Aveo and brings it more upscale.

» The Buick Verano, which is based on the Chevrolet Cruze and will be the smallest car in Buick's lineup.

» The Hyundai Veloster, a sporty, two-door coupe that Hyundai estimates will get 40 miles per gallon.

» The new Mercedes C-Class, featuring a smaller, four-cylinder engine.

» The Ford C-Max, a pint-size, seven-passenger minivan.

» The new A6 sedan that Audi says will get at least 25 percent better fuel economy than the outgoing model.

» A new, unnamed, midsize car from Volkswagen.

The industry thinks it's making the right bet by focusing on cars, even though pickups and SUVs captured slightly more of the U.S. market last year, about 50.2 percent. That happened because construction companies and small businesses bought necessary work trucks as the economy sputtered back to life.

"The truck and SUV buyer is more of a need-based buyer. They're coming back to the market first. This year, as the economy improves, there will be more demand on the car side," said Don Esmond, Toyota's senior vice president of U.S. operations.

U.S. gas prices have been steadily climbing in the last six months, and car companies are bracing for a return to $4-per-gallon gas as early as this summer. Gas averaged $3.07 per gallon nationally last week, 40 cents higher than a year ago.

Toyota says it is already seeing increased buyer interest in fuel economy. Sales of its Prius hybrid were higher in December than any other month last year, said Bob Carter, the company's vice president of U.S. sales.

At the same time, rising fuel economy standards are forcing automakers to make smaller cars and consider new technologies such as battery power. Cars, pickups and SUVs will need to meet a new average of 35.5 mpg by 2016, up from 27.5 mpg today, and the government is developing plans for future vehicle models that could push the standards to between 47 mpg and 62 mpg by 2025.

Demographics also play a role. The unemployment rate for young people is higher than the national average because of the recession. That hurts their ability to buy cars. In December the unemployment rate for 20- to 24-year-olds was 15.3 percent, compared with 9.4 percent for the country overall.

As young people go back to work, sales of small cars should rise, said George Pipas, Ford's top U.S. sales analyst, noting that half of first-time car buyers choose compact or subcompact cars. At the same time, many retired baby boomers are choosing smaller vehicles. "Everything we see points to smaller everything," he said.

But small won't mean Spartan. Unlike the inexpensive compacts of the 1970s, today's small cars have decent power under the hood and plenty of gadgets on the dash. Prices are higher, too.

In the past, Detroit carmakers relied more heavily than Asian rivals on sales of trucks and SUVs for their profits. Margins are much smaller for a $15,000 Ford Fiesta than a $37,000 Ford Expedition.

But after their recent restructurings, GM and Ford are profitable again and Chrysler is close to a profit despite the recession-weakened market in the U.S. They slashed labor costs, making it possible to build small cars profitably in the U.S. They cut production expenses by selling vehicles like the Fiesta worldwide instead of developing separate cars for different markets. And they also benefited from Toyota's rash of safety recalls.

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